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ISSN 1822-8011 (print)
ISSN 1822-8038 (online)
INTELEKTINË EKONOMIKA
INTELLECTUAL ECONOMICS
2009, No. 1(5), p. 39–46
IMPORTANCE OF STRATEGIC ALLIANCES
IN COMPANY’S ACTIVITY
Margarita IšoraItė
Mykolas Romeris University
Ateities str. 20, LT-08303 Vilnius, Lithuania
E-mail: misorait@mruni.lt
Abstract. Strategic alliance is an agreement between two or more organizations to cooperate in a specific bu-
siness activity, so that each benefits from the strengths of the other, and gains competitive advantage. the formation
of strategic alliances has been seen as a response to globalization and increasing uncertainty and complexity in the
business environment. Strategic alliances involve the sharing of knowledge and expertise between partners as well as
the reduction of risk and costs in areas such as relationships with suppliers and the development of new products and
technologies. a strategic alliance is sometimes equated with a joint venture, but an alliance may involve competitors,
and generally has a shorter life span. Strategic partnership is a closely related concept. this article analyzes definition
of strategic alliance, its benefits, types, process of formation, and provides a few cases studies of strategic alliances.
this paper tries to synthesize the scope and role of marketing functions in the determination of effectiveness of
strategic alliances. Several propositions from a marketing viewpoint concerning the analysis of alliance process are
formulated. on the basis of the propositions, a framework is developed for future research.
JEL slassification: L220, M100.
Keywords: strategic alliance, strategic management, types of strategic alliance.
Reikšminiai žodžiai: strateginis aljansas, strateginis valdymas, strateginių aljansų rūšys.
Introduction 3. Complexity is increasing, and no single or-
Strategic alliances developed and propagated as ganization has the required total expertise to
formalized interorganizational relationships, parti- best serve the customer.
cularly among companies in international business 4. Partnerships can defray rising research and
systems. These cooperative arrangements seek to development costs.
achieve organizational objectives better through col- 5. alliances facilitate access to global markets.
laboration than through competition, but alliances Strategic alliances are becoming an important
also generate problems at several levels of analysis. form of business activity in many industries, parti-
Strategic alliances are critical to organizations for a cularly in view of the realization that companies are
number of key reasons: competing on a global field. Strategic alliances are
1. organic growth alone is insufficient for me- not a panacea for every company and every situation.
eting most organizations’ required rate of However, through strategic alliances, companies can
growth. improve their competitive positioning, gain entry to
2. Speed to market is essential, and partnerships new markets, supplement critical skills, and share
greatly improve it. the risk and cost of major development projects.
Margarita Išoraitė
40
the main purpose of the article is to analyze the Strategic alliance can be described as a process
importance of strategic alliances in a company‘s ac- wherein participants willingly modify their basic bu-
tivity. siness practices with a purpose to reduce duplication
and waste while facilitating improved performance
1. Definition of Strategic Alliance (Frankel, Whipple and Frayer, 1996).
A strategic alliance has to contribute to the suc-
Strategic alliances are agreements between com- cessful implementation of the strategic plan; therefo-
panies (partners) to reach objectives of common in- re, the alliance must be strategic in nature. The rela-
terest. Strategic alliances are among the various opti- tionship has to be supported by executive leadership
ons which companies can use to achieve their goals; and formed by lower management at the highest,
they are based on cooperation between companies macro level. While the following does not represent
(Mockler, 1999). Strategic alliances are agreements a comprehensive definition for a strategic alliance, at
between companies that remain independent and are this stage, one might define a strategic alliance as a
often in competition. In practice, they would be all relationship between organizations for the purposes
relationships between companies, with the exception of achieving successful implementation of a strate-
of a) transactions (acquisitions, sales, loans) based gic plan.
on short-term contracts (while a transaction from a In simple words, a strategic alliance is someti-
multi-year agreement between a supplier and a buyer mes just referred to as “partnership” that offers busi-
could be an alliance); b) agreements related to acti- nesses a chance to join forces for a mutually benefici-
vities that are not important, or not strategic for the al opportunity and sustained competitive advantage
partners, for example a multi-year agreement for a (Yi Wei, 2007). a literature review of the definitions
service provided (outsourcing) (Pellicelli, 2003). of strategic alliances is given in table 1.
Table 1. Definitions of strategic alliances (adapted by Yi Wei, 2007)
Douma, 1997 A strategic alliance is a contractual, temporary relationship between companies remain-
ing independent, aimed at reducing the uncertainty around the realization of the part-
ners’ strategic objectives (for which the partners are mutually dependent) by means of
coordinating or jointly executing one or several of the companies’ activities. Each of the
partners are able to exert considerable influence upon the management or policy of the
alliance. the partners are financially involved, although by definition not through partici-
pation, and share the costs, profits and risks of the strategic alliance.
Dussauge & Garrette, 1995 an alliance is a cooperative agreement or association between two or more independ-
ent enterprises, which will manage one specific project, with a determined duration, for
which they will be together in order to improve their competences. It is constituted to
allow its partners to pool resources and coordinate efforts in order to achieve results that
neither could obtain by acting alone. the key parameters surrounding alliances are
opportunism, necessity and speed.
Faulkner, 1995 a strategic alliance is a particular mode of inter-organizational relationship in which the
partners make substantial investments in developing a long-term collaborative effort, and
common orientation.
Gulati, 1998 Strategic alliances are voluntary arrangements between firms involving exchange, sharing,
or co-development of products, technologies, or services.
Phan, 2000 alliances are long-term, trust-based relationships that entail highly relationship-specific
investments in ventures that cannot be fully specified in advance of their execution.
Porter, 1990 Strategic alliances are long-term agreements between firms that go beyond normal market
transactions but fall short of merger. Forms include joint ventures, licenses, long-term sup-
ply agreements, and other kinds of inter-firm relationships.
Yoshino & Rangan, 1995 a strategic alliance is a partnership between two or more firms that unite to pursue a set
of agreed upon goals but remain independent subsequent to the formation of the alliance
to contribute and to share benefits on a continuing basis in one or more key strategic
areas, e.g. technology, products.
Importance of Strategic Alliances in Company’s Activity
41
When a strategic alliance is proposed within an 1) When each partner recognizes the need to
organization, the following questionnaire should be have access to capabilities and competencies it can-
used as an initial assessment of the opportunity: not develop internally.
– Does the proposed alliance contribute to the 2) When a gradual approach is preferable in
mission or vision of the organization? accessing resources, capabilities and competencies.
– Does this proposed alliance allow the orga- Uncertainties about the future evolution of demand
nization to achieve its objectives more effec- and technology often advise flexibility. the alliance
tively or more efficiently? can provide this.
– are there competitive advantages to forming 3) When it is not possible to acquire another
this alliance? For example, will this allow company in order to achieve particular development
the organization to mitigate risks, penetrate a goals. It is a fairly common belief that the manage-
new marketplace or take advantage of a new ment of an alliance must have qualities different at
opportunity that otherwise would not likely least in part from those of the parent company (the
come to fruition? partners). the reason is simple. the management of
– Is this alliance important enough to be in- a strategic alliance is profoundly different from that
cluded in the strategic plan? Is this alliance of a company that acts independently.
important enough that it will continue to re- Creating strategic alliances has evolved quickly
ceive the support and attention of upper ma- over the last few decades:
nagement, even after its formation? • In the 70’s, the main factor was the perfor-
– What were the key drivers in seeking a stra- mance of the product. alliances aimed to
tegic alliance instead of doing it alone? acquire the best raw materials, the lowest
– What were the key objectives that the com- costs, the most recent technology and impro-
pany sought to achieve through the allian- ved market penetration internationally, but
ce? the mainstay was the product.
– What channels and mechanisms were used • In the 80’s, the main objective became con-
to identify a potential strategic partner? solidation of the company’s position in the
– What are some of the key attributes that were sector, using alliances to build economies of
looked for in a strategic partner? scale and scope. In this period there was a
– How important has the design focus of the true explosion of alliances. the one between
company been in attracting alliance par- Boeing and a consortium of Japanese com-
tners? panies to build the fuselage of the passen-
– What was the typical life cycle of a strategic ger transport version of the 767; the alliance
alliance and how did it end? between Eastman Kodak and Canon, which
– Which aspects of the strategic alliance(s) allowed Canon to produce a line of photoco-
worked well? piers sold under the Kodak brand; an agree-
– What were the barriers that had to be overco- ment between toshiba and Motorola to com-
me in order to establish a strategic alliance? bine their respective technologies in order to
– What aspects of the strategic alliance(s) were produce microprocessors.
the hardest to work with? • In the 90’s – according to Harbison and Pe-
Strategic alliances have some characteristics: kar (1998) – collapsing barriers between
1. Two or more organizations (business units or many geographical markets and the blurring
companies) make an agreement to achieve objectives of borders between sectors brought the de-
of a common interest considered important, while re- velopment of capabilities and competencies
maining independent with respect to the alliance. to the centre of attention. It was no longer
2. the partners share both the advantages and enough to defend one’s position in the mar-
control of the management of the alliance for its en- ket. It became necessary to anticipate one’s
tire duration. rivals through a constant flow of innovations
3. The partners contribute, using their own re- giving recurrent competitive advantage.
sources and capabilities, to the development of one
or more areas of the alliance (important for them).
this could be technology, marketing, production,
R&D or other areas.
Strategic alliances yield better results under cer-
tain conditions (Pellicelli, 2003):
Margarita Išoraitė
42
2 Table. The factors leading to alliances (Source: adapted from Harbison and Pekar, 1998)
1970’s 1980’s 1990’s
Product performance Position in the sector Capabilities and competencies
Produce using the most recent tech- Construct position in the Access to new opportunities through a
nologies. sector. constant flow of innovation.
Marketing beyond national Consolidate position in anticipate rivals to maximize
borders. the sector. the creation of value
Sales based on product Economies of scale and reduce total cost for the
performance. Scope product or client segment.
acquire advantages in responding to
changing conditions and emerging
opportunities.
regardless of the broad variety of definitions Shared knowledge and expertise: Most firms are
for strategic alliance, all have certain similarities competent in some areas and lack expertise in other
(Spekman, 1998): areas; as such, forming a strategic alliance can allow
– each has goals that are both compatible and ready access to knowledge and expertise in an area
directly related to the partner’s strategic in- that a company lacks. the information, knowledge
tent; and expertise that a firm gains can be used, not just
– each has the commitment of, and access to, in the joint venture project, but for other projects and
the resources of its partners and; purposes. the expertise and knowledge can range
– each represents an opportunity for organisa- from learning to deal with government regulations,
tional learning. production knowledge, or learning how to acquire
resources. A learning organization is a growing or-
2. Benefit of the Strategic Alliances ganization.
there are four potential benefits that interna- Synergy and competitive advantage: achieving
tional business may realize from strategic alliances synergy and a competitive advantage may be another
(Bernadette Soares, 2007): reason why firms enter into a strategic alliance. as
Ease of market entry: advances in telecommu- compared to entering a market alone, forming a stra-
nications, computer technology and transportation tegic alliance becomes a way to decrease the risk of
have made entry into foreign markets by interna- market entry, international expansion, research and
tional firms easier. Entering foreign markets further development etc. Competition becomes more effec-
confers benefits such as economies of scale and sco- tive when partners leverage off each other’s strengt-
pe in marketing and distribution. the cost of entering hs, bringing synergy into the process that would be
an international market may be beyond the capabili- hard to achieve if attempting to enter a new market
ties of a single firm but, by entering into a strategic or industry alone.
alliance with an international firm, it will achieve the In retail, entering a new market is an expensi-
benefit of rapid entry while keeping the cost down. ve and time consuming process. Forming strategic
Choosing a strategic partnership as the entry mode alliances with an established company with a good
may overcome the remaining obstacles, which could reputation can help create favourable brand image
include entrenched competition and hostile govern- and efficient distribution networks. Even established
ment regulations. reputable companies need to introduce new brands
Shared risks: risk sharing is another common to market. Most times smaller companies can achi-
rationale for undertaking a cooperative arrangement eve speed to market quicker than bigger, more esta-
- when a market has just opened up, or when there is blished companies. Leveraging off the alliance will
much uncertainty and instability in a particular mar- help to capture the shelf space which is vital for the
ket, sharing risks becomes particularly important. success of any brand.
the competitive nature of business makes it difficult Biggs (2006) identifies the following as key fac-
for business entering a new market or launching a tors that determine the success of a strategic alliance,
new product, and forming a strategic alliance is one which are presented in 1 Figure.
way to reduce or control a firm’s risks.
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